Bear Stearns must pay nearly $160 million to investors in a hedge fund for failing to properly supervise the activities of the fund before it collapsed in 2000, according to The New York Times. The case involved Manhattan Investment Fund and its Austrian-born manager Michael Berger. Four hundred million dollars of investors’ money was lost by making bad bets on Internet stocks during the technology boom of the late 1990s. The year before the fund collapsed, suspicions grew among executives at Bear Stearns, which was the fund’s prime broker, that Berger was providing fake account statements to investors. Berger transferred $141.4 million to the fund’s account at Bear Stearns to meet increased margin requirements and continue selling stocks short, betting that they would decline in value, court filings state. A federal bankruptcy judge ordered $121.1 million of the transferred payments be returned to investors with interest. Judge Burton R. Lifland, in an opinion issued last month, said that Bear Stearns, which made $2.4 million in profits from executing transactions for the funds, “failed to act diligently in a timely manner,” noting that individuals inside the investment bank may have been aware of the fraud dating back to 1998. “We are disappointed with the bankruptcy’s court’s decision, and believe that it is not supported by either the law or the fact’s,” Bear Stearns said in a statement. The investment bank plans to appeal the decision. The judge’s decision surprised many on Wall Street, who said that if it stands on appeal, prime brokers may no longer be able to argue they have a hands-off business of simply executing trades for funds. Some said that Wall Street firms may need to strengthen their market surveillance programs to catch odd transactions or false statements. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.
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